[Inside Chodong] In the Era of Heatflation, Start by Examining the Agricultural Distribution Structure

Impact of Heatwaves and Heavy Rains Repeatedly Drives Up Produce Prices Each Year
Producers Dissatisfied as Rising Production Costs Go Uncompensated
High Distribution Costs Cited as Main Cause of Retail Price Hikes
Thorough Review of Agricu

A friend who moved to the countryside to farm several years ago has recently been losing sleep for the past two to three weeks. After the monsoon season subsided and an early heatwave seemed imminent at the beginning of this month, record-breaking torrential rains hit the Chungcheong and southern regions. He grows leafy vegetables in greenhouses and is highly sensitive to the weather. If the temperature is too high, the leaves of the crops wilt and the risk of pests and diseases increases. Heavy rainfall floods the vegetables, ruining the harvest.

He distributes his produce through a large agricultural and fishery auction market in Seoul. When the weather is as unpredictable as it is these days, the growth of leafy vegetables slows, and the yield rate (the proportion of top-quality produce), which is normally around 90%, drops to below 50%. To send the harvest to the auction market, he must meet a set volume, but as the weight and volume of the vegetable leaves decrease, he needs to pack more. The shipment volume decreases compared to labor costs, and the expenses for pest and disease prevention rise, driving up production costs. He laments that there are many days when the auction price falls far short of covering these costs, but he is forced to sell in order to maintain his business relationships.

Unlike wholesale prices at the production site, retail prices for fruits and vegetables that consumers face are sky-high. According to KAMIS, the agricultural and fishery distribution information service operated by the Korea Agro-Fisheries & Food Trade Corporation (aT), the price of a watermelon, a representative summer fruit and vegetable, was 21,432 won per piece at the beginning of last month, but by the 21st, it had soared by 46.4% to a record high of 31,374 won. The retail price for 100g of spinach (top grade) also rose more than threefold, from 670 won on the 2nd of last month to 2,303 won on the 24th. There are also predictions that the prices of napa cabbage and strawberries, which were damaged by the recent torrential rain, will surge after Chuseok.

These cases are a glimpse into the everyday reality of "heatflation" during the summer. Heatflation refers to the phenomenon where food prices soar as crop yields fall due to climate change-driven droughts and heatwaves. The pattern of seasonal crop prices spiking every year due to heatwaves and heavy rains continues, and with no effective solutions in sight, some even say, "Adapting, not overcoming, is the answer to climate change."

According to the Bank of Korea's report "Recent Trends and Assessment of Living Costs," released last month, as of 2023, if the average price level of the Organisation for Economic Co-operation and Development (OECD) is set at 100, domestic food prices stood at 156, higher than the average of major countries worldwide. Statistics from the UK-based economic analysis agency EIU (as of 2023) also showed that the prices of fruits, vegetables, and meat in Korea were more than 1.5 times the OECD average.

The friend who switched his career to farming pointed out, "Based on my experience over the past few years, the opaque intermediate distribution process seems to be a key factor driving up prices." Excessive margins are added at each stage, from producer to wholesale market to intermediate wholesalers to retailers. The Bank of Korea report also noted that agricultural productivity and the openness to fruit and vegetable imports are significantly lower than in other countries, and the distribution market has become entrenched in a high-cost structure, pushing up prices. Distribution costs account for up to 50% of the consumer price of agricultural products.

As a result, producers are frustrated that they cannot receive fair prices at the production site, while self-employed business owners and consumers are reluctant to buy because prices are too high, creating a vicious cycle. Producers urgently call for measures such as "drastically reducing distribution margins at least during periods of unstable supply and demand, and eradicating the malpractice of some businesses hoarding inventory." To adapt to abnormal weather, which has become the new normal, and stabilize food prices, the distribution structure of agricultural and fishery products must be thoroughly reviewed.